Goldman Sachs has upgraded Reliance Industries (RIL) to buy from neutral, citing a potential

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lift in margins on increased refining and recovering oil demand, sending the refiner's shares up on Tuesday.

"We believe that an upcycle in refining will lift margins and is likely to drive an earnings surprise for RIL over the medium term, by offsetting lackluster E&P performance," the bank said in a report.

Goldman raised its target prices for the oil and gas major to Rs 970 ($19.77) from Rs 960 previously.

Reliance, controlled by Mukesh Ambani, opened a share buyback on February 1 as it looks to prop up its underperforming shares by spending up to $2.1 billion to buy back shares at a maximum price of Rs 870 each.

Reliance Industries expects to produce up to 3.5 million standard cubic metres a day (mscmd) of gas by the second half of 2014 from two coal-bed-methane (CBM) blocks in central India, the company said.

The energy conglomerate invited bids for selling the gas for five years from its blocks at Shahdol and Annupur in the state of Madhya Pradesh.

The fields are likely to start production by July 2014 and the price reached through the bidding will need to be approved by the government, a company official said.